Contributed by Joe Montero
In a recent article in The Age (27 February 2017), Eryk Bagshaw wrote that company profits have surged to record highs, as the Turnbull government prepared to argue the case for a $50 billion tax cut.
“The three months to December 2016 saw a 20 per cent jump in profits, while wages fell 0.5 per cent – the largest decline since mid-2009, according to the Australian Bureau of Statistics Wage Price Index. Over the course of 2016, company profits rose 26 per cent”.
Commsec chief economist Craig James said the 26 per cent annual climb in business profits was driven by gains in the finance and mining sectors, and the economy’s bounce back from Brexit, the 2016 federal election and US presidential election, but wage growth remained low at 1 per cent.
Jo Horton, a senior economist at the Bank of Melbourne, said the profit increase was driven mainly by mining profits which increased by 50 per cent for the December quarter due to strong commodity prices.
The insurance industry also did well, booming by 109 percent.
Regardless, the government continues to press for an economic plan that will raise the income of the wealthiest even further. The price is to be paid by the normal wage earner and those on Centrelink benefits. Last week’s slashing of weekend penalty rates, fits in well with this plan. Through these measures, income is to be transferred over through a cut in corporate tax.
To its credit, Labor has said that the government plan is another perk for big business. Labor supporters have been encouraged by this, but are waiting for the words to be matched by action.
Knowing the extent of public anger over corporate tax breaks, the government knows that a sudden cut to the corporate tax rate is a major political problem. This is the reason why a plan to bring it in stages has been put forward. Initially, the tax will reduced for small and medium companies with a turnover of less than $10 million a year.
But within the proposed legislation there is provision to remove the threshold before 2023 through administrative means. It is likely to go sooner.
A company tax cut for those with a turnover of less than $100 million a year is justified, because this is the section of business that is facing considerable hardship. Australia’s future needs their involvement. Many of them are mum and dad companies, who not only suffer from the falling real income of their customers, but are squeezed hard by the banks and corporate suppliers.
There is also a fast growing army of contractors, who are really disguised employees, forced to declare themselves as a company, and pay the costs that would normally be worn by the employer. They also need relief from company tax.
However, this need should never be used as a cover to provide companies with a higher turnover another means to escape their tax obligations. The numbers say they are doing better than anyone else. Shouldering some responsibility for the cost of providing society with necessary services is not going to go anywhere near breaking them.
More should be done to target company tax better. Finance and mining should incur a higher tax rate. Not only because these industries can afford it, but also because it would mean that they would have to pay for some of the economic, social and environmental harm they have been causing. This is a matter that deserves the telling of another story